Renewable energy assets, potentially offering both environmental and economic benefits, are understandably the focus for many investors. However, with the US set for load growth for the first time in almost two decades, all types of energy generation assets are likely to be required.
Tyler Kopp and Scott Steimer, principals at ECP, explain why the energy market in the US is generating such excitement. Even with some volatility to be expected, rising energy demand – whether from novel power-hungry artificial intelligence technology or simply the onshoring of manufacturing facilities – means opportunities will abound for investors if they know where to look.
Q AI and data centres seem to dominate conversations when thinking about electricity markets, but what is the current conversation missing when we think about US power markets and the drivers of demand growth?
Scott Steimer: For us, there’s certainly a lot of hype regarding the demand growth caused by AI and data centres but it’s important to remember that this represents less than half, maybe even less than a third, of what’s going to drive electricity demand growth over the next five to 10 years.
Demand is also expected to come from the build-out and reshoring of domestic manufacturing, as well as the further electrification of the transport sector. It really is more broad-based than may initially appear. If you looked at electricity demand growth expectations from a few years ago, AI and data centres would have only placed third or fourth on a list of drivers.
It’s worth noting that the uptick in demand is happening at a time when we are not, broadly speaking, adding a lot of new baseload generation capacity in the US. Where we are, the interconnection queues, which foreshadow what is to come in the next five years or so, are made up primarily of renewables in many parts of the country.
Tyler Kopp: The other thing to reiterate is that in the US over the last 20 years or so, there’s been no load growth, primarily due to manufacturing offshoring and energy efficiency. When we talk about load growth now, we’re seeing estimates of between 2 and 5 percent annual growth. While this would be hardly earth-shattering in any other industry, the amount of capital this requires in the power sector is staggering. Undoubtedly, renewables will play a key part of this, which means reliability will inevitably be a factor.
In January 2025, we announced a $26.6 billion sale of independent power producer Calpine to Constellation Energy Corp in a deal that will create the largest provider of clean energy in the US. Interestingly, a recent Constellation investor deck stated that in the coming decades, every major market in the US needs the same or more natural gas capacity. This shows that the short-term future is set to be very interesting in the power market – certainly compared with the last decade.
Q With reliability being a major challenge in the near term, what opportunity does that provide for private capital?
TK: The reliability angle is going to be a huge driver of capital deployment opportunities. One of the challenges is that the cost of constructing new, dispatchable power assets has gone up significantly. These prices may have risen, but at the same time, power prices and reliability payments have not increased at the same rate. This means that justifications for a new build, from an economic perspective, may not hurdle.
In the US, we’ve become accustomed to cheap electricity. But ultimately someone will need to pay for the necessary new builds. We believe it’s likely that there will be more contracts with data centres to bring on supply alongside new load (ie, data centres). You’re going to see opportunities to deploy capital in this macro, but those opportunities are probably going to look a little different to past investments, with an increased focus on the impact of rising prices, which are not popular politically.
SS: We are short of generation, or soon will be, in a lot of markets. We certainly need to see new investment. If you think about the markets where renewable penetration is growing, you see a dynamic where the marginal contribution to reliability from another solar asset, say, is going down based on its production profile relative to demand in the region. In some of these markets, this is creating demand for other fuel sources that can balance that or, alternatively, more battery storage.
The opportunities are becoming more nuanced, so I think it’s really critical to have a deep understanding of the markets. As much as we need energy everywhere, you need to be smart about where you’re investing.
Q How do renewables play into the search for reliability especially with concerns around support at the federal level?
SS: I think the broader dynamic is a supply shortage. Interconnection queues over the next five years or so are heavily dominated by renewables and battery storage. Not all the assets in these queues will be built but realistically, renewables will probably be the majority contributor to net supply over the next few years. It would be counterproductive for federal or state measures to create challenges for these projects.
Similarly, we think there are significant parts of the current renewable policy that have bipartisan support. For example, a major part of the Inflation Reduction Act concerned encouraging domestic production of things like solar modules and battery storage technology. If these sorts of facilities are built, they need a functioning market to sell into. The entire supply chain needs to be able to support those investments in renewables.
TK: As a country, I don’t think we can turn our back on renewables. We need electrons and to meet this demand we’ll have to take an all-of-the-above approach. At the end of the day, each political party wants cheap electricity, so I expect support for renewables to continue.
An interesting deal we’ve been involved in recently is our investment in PROENERGY, which is a specialised service, manufacturing and construction business for gas peakers. These are plants that don’t run very often but when they do are critical for the grid as they can start up at short notice, when demand is peaking.
These types of assets are slightly less efficient than large natural gas plants but are quick to construct and have low fixed costs. These plants are designed to run only 10 to 15 percent of the year at most. Obviously, we want renewables to be used as much as possible, but when that’s not feasible, this is a great backup. We think the thesis around gas peakers paired as backup to intermittent renewable resources is very investable.
Q How important is effective asset management when dealing with energy assets – as opposed to just acquisition?
TK: Asset management is hugely important. Electricity is not a commodity that is easy to store, even with battery technology improving. Managing all of these power plants and their commercial risk is absolutely critical. As such, we spend a lot of time thinking about variances in power prices and are always actively managing our positions.
SS: If you look back 10 to 15 years ago, the majority of renewable development was based on 20-plus-year contracts. That resulted in more passive management than we see now. On the renewables side, today you see shorter-term contracts or more of a mix of contracted assets with some portion exposed to wholesale markets. It’s always been critical to understand these markets and how to manage asset risk but that factor has only grown in importance.
Q Is there some tension between the digitalisation and decarbonisation trends? How can both be supported simultaneously?
TK: There’s always a tension when energy consumption increases, but most investors are practical. I think if investors are willing to dig a little bit deeper and understand the dynamics, they’ll see the overall reduction of carbon emissions in the sector – even when fossil fuels are used. Take natural gas, for example. A lot of this is being used to offset coal.
Broadly speaking, the affordability and practical benefits that emerge as the renewable market grows are being recognised by investors. As long as they understand this and incorporate the risks of shifting climate change policies into their investment decisions, you can achieve a pretty good alignment between the digitalisation and decarbonisation trends.
Q Which trends do you see shaping the future of investment in the energy market?
TK: We continue to think that buying existing gas plants is an attractive investment. When you look at where even the public companies in the power space trade relative to the hyperscalers of the world, they are markedly cheaper and still have some of the highest free cashflow yields.
There will be some bumps in the road. Some volatility, like we saw following the DeepSeek news, is inevitable. Even so, we remain excited by the power industry because even two percent load growth means huge investment will be needed.
SS: In general, we see valuations being attractive in many markets. Generation assets typically trade at a discount to replacement costs and we’re now talking about a situation where we may be short of capacity. That can only bode well for new investments. Similarly, with regard to renewables, a lot of solar and wind developers have been around long enough to acquire a good track record. All this means that the market is expected to be well positioned to attract new investment for years to come.